2006 (8) TMI 228 - AT - Income Tax

Summary

Issues:
1. Addition of extra profit by the Assessing Officer
2. Exclusion of unrealized export purchases from total turnover under section 80HHC

Analysis:

Issue 1: Addition of extra profit by the Assessing Officer
The revenue raised concerns about the deletion of an addition of Rs. 6,19,058 as extra profit by the Assessing Officer. The Assessing Officer applied a gross profit rate of 18.5% instead of the declared 18.1% due to unverifiable payments to weavers in the manufacturing process. The CIT(A) found that the assessee maintained proper details, leading to no justification for the addition. The Tribunal acknowledged the applicability of section 145 due to unverifiable payments to weavers. While accepting the Assessing Officer's concern, the Tribunal directed a detailed analysis of sale rates and purchase rates over the years to determine the reasonableness of the declared gross profit rate. The issue of extra profit addition was restored to the Assessing Officer for further examination.

Issue 2: Exclusion of unrealized export purchases from total turnover under section 80HHC
The second ground involved excluding unrealized export purchases from the total turnover under section 80HHC. The Assessing Officer contended that unrealized export sale proceeds should not be excluded from total turnover as per Explanation (ba) in section 80HHC. However, the CIT(A) referred to a decision by the Kerala High Court, stating that unrealized sale proceeds should not be included in total turnover as they do not contribute to actual profit. The Tribunal analyzed the definitions of export turnover and total turnover under section 80HHC. It emphasized that unrealized sale proceeds should not be part of export turnover but must be included in total turnover as they constitute the total business of the assessee. Therefore, the Tribunal upheld the revenue's viewpoint, reversing the CIT(A)'s decision. The Tribunal also noted that the decision in the Abad Fisheries case aligned with its view, leading to the allowance of this ground of the revenue. Consequently, the revenue's appeal was partially allowed.

In conclusion, the Tribunal addressed the issues of extra profit addition and the exclusion of unrealized export purchases meticulously, providing detailed reasoning based on legal provisions and precedents. The judgment emphasized the importance of accurate profit computation and turnover inclusion under section 80HHC, ensuring a fair and lawful assessment process.